Bruised Asian Shipyards Prepare for Eventual Market Upswing

Bruised Asian Shipyards Prepares for Eventual Market Upswing
Battered Asian shipyards suffering from the most severe downturn in the offshore segment in recent years take steps to improve their future prospects.

After being adversely impacted by over a year of shrinking orders, many rig builders and offshore construction contractors in Asia have taken measures to better position themselves for an eventual recovery in the global oil and gas industry.

While the timing of an oil price recovery remains uncertain, some Asian yards are strengthening their future competiveness in the cost-conscious offshore industry, where crude oil prices no longer trade around the $100 a barrel mark – a level where they hovered around from 2011 until the current slump began around the middle of 2014.

 The International Energy Agency (IEA) projected oil prices would reach around $80 a barrel by 2020, according to its “World Energy Outlook 2015” report released Nov. 19.

Declining Yard Profitability

The urge for Asian shipyards to find more effective ways of operating in the offshore industry has been made more pressing given their generally bleak financial performance over the last year. Latest financial results released for third quarter (3Q 2015) ending Sept. 30 indicated that the operating environment for these firms remained fairly gloomy.

In fact, an Oct. 27 Bloomberg report noted that customers are asking shipyards, including those in Asia, to delay delivery of ships and offshore rigs as weaker economic growth and sluggish oil prices made it difficult for these companies to pay for the projects.

Bruised Asian Shipyards Prepares for Eventual Market Upswing

In South Korea, only one of the three major shipyards was profitable in 3Q 2015, while their two heavyweight counterparts in Singapore made lower profits. A major Chinese yard also recorded losses during the same period.

Samsung Heavy Industries Co. Ltd.’s (SHI) net profit for the quarter was $48.3 million (KRW 53.7 billion), down 69 percent from $155.3 million (KRW 172.6 billion) a year ago. This was however an improvement from 2Q 2015, when the shipyard registered a loss of around $1 billion (KRW 1.2 trillion). SHI’s latest quarterly net profit was attributed to the receipt of payments from a client for design changes to a rig under construction, Bloomberg reported Oct. 27.

Unlike SHI, local rival Hyundai Heavy Industries Co. Ltd. (HHI) – the world’s biggest shipbuilder – posted a net loss of $406.3 million (KRW 451.4 billion) in 3Q 2015, exceeding the net loss of $218.2 million (KRW 242.4 billion) in the previous quarter but still an improvement year-on-year, when the firm registered a net loss of $1.3 billion (KRW 1.5 billion).

“The shipbuilding business was hit by cancellation of a semisubmersible rig [by Bollsta Dolphin Pte Ltd.] as oil prices nosedived to $40 a barrel. The offshore business set up a reserve for possible losses that may be incurred from belated change orders, increased manhours or delays in delivery caused by design changes,” a HHI source said.

The financial performance of Daewoo Shipbuilding & Marine Engineering Co. Ltd. (DSME) – the world’s second largest shipbuilder – was also hit by the industry downtrend, with the firm posting a 3Q 2015 net loss of $1.2 billion (KRW 1.4 trillion) – its second consecutive quarterly loss – albeit an improvement from the $2.1 billion (KRW 2.3 trillion) net loss in 2Q 2015.

Like their South Korean competitors, Singapore’s Keppel Offshore & Marine Ltd. (Keppel O&M) and Sembcorp Marine Ltd. – two of the world’s largest builders of jackups – also saw profitability slip in 3Q 2015.

Keppel O&M’s 3Q 2015 net profit fell 34 percent to $119.7 million (SGD 166 million), compared to $181.7 million (SGD 252 million) year-on-year amid a slowdown in orders for new drilling rigs, while there was a 76 percent decline in net profit for local rival Sembcorp Marine from $95.3 million (SGD 132 million) to $23.1 million (SGD 32 million) in the corresponding period as contributions from its key rig building business dried up.

Meanwhile, Cosco Corporation (Singapore) Ltd. – a Chinese ship repair & marine engineering and shipping group – posted a net loss of $58.2 million (SGD 82.1 million) in 3Q 2015 compared to net loss of $3.4 million (SGD 4.8 million) in the earlier quarter and a net profit of $5.1 million (SGD 7.1 million) in 3Q 2014.


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sam  |  December 23, 2015
Its solid explanation.